IP in Due Diligence

The legal framework

IP due diligence asks whether the target owns or is entitled to use the IP that its business depends on, whether the rights are valid and maintained, whether anyone else holds interests in them, and whether the business infringes the rights of others. The answers feed the warranties, the price and sometimes the decision to proceed.

Ownership and chain of title

Ownership is where problems most often arise. The rules differ by right.

Copyright and software. The author is the natural person who created the work. In many member states, transfers of copyright must be in writing and are interpreted restrictively in favour of the author. Rights in works made by an employee do not pass to the employer automatically unless the contract provides for it, with a statutory exception for software created by an employee in the course of their duties. Freelancers and agencies need a written assignment.

Patents and designs. The right belongs to the inventor or designer unless it passes to the employer or client by law or contract. Some countries have no dedicated statute on employee inventions, so employment contracts should address them. Check that the owner on the register is the company, and that the chain from inventor to company is documented.

Trademarks. Check the registered owner in each register (EUIPO, the Benelux Office for Intellectual Property, WIPO and national offices). Marks registered in a founder's name are a common finding.

Joint development. Work done with universities, research partners or customers may be jointly owned, or subject to the partner's licence conditions. Public funding can also bring ownership or use conditions.

Protection, maintenance and coverage

A review compares the registered rights with the markets where the business operates. It looks for valuable assets that were never protected, for jurisdictions where coverage is missing, and for rights that may lapse through missed renewals or non-use. A European trademark that has not been put to genuine use for five years can be challenged for non-use. Patent annuities and trademark renewals have fixed deadlines, and a loss of rights is often irreversible.

Encumbrances and exploitation

Licences in and out, security over IP, options, co-existence agreements and covenants not to sue all limit what the buyer will own. Exclusive licences and change-of-control clauses require particular attention. A licence in on which the product depends may end on a sale.

Software, trade secrets and data

For software, the review checks the use of open-source components and the licence terms attached to them. Trade secrets are protected under the Trade Secrets Directive (EU) 2016/943 only if the holder has taken reasonable steps to keep them secret, so confidentiality agreements and access controls matter. Where the business depends on data, the review looks at the right to use it, including under the GDPR and, for databases, the sui generis database right.

In practice

A Walloon biotech firm is acquired by a larger group. The buyer's IP review finds that its main patent family is registered in the name of the university where the founder worked, and that the firm holds only a licence. A second family is correctly owned but was never extended to the United States, where the buyer plans to launch. The firm's brand is a European trademark that is used, but a related word mark in Switzerland lapsed two years ago. Finally, the main software product includes an open-source library under a licence that requires disclosure of modified source code.

Each finding has a consequence. The licence from the university must be confirmed, with its change-of-control terms, before signing. The gaps in coverage affect the buyer's plan and the price. The lapsed mark may be re-filed. The open-source point needs a technical fix, and until then the buyer asks for a specific indemnity.

For a seller, the lesson is to run the same review first. Maintaining a current portfolio view, as our portfolio platform does, shows registered rights, owners, status and deadlines in one place. A data room lets the findings be documented and shared in an orderly way, and contract review is used to read the licences and assignment clauses.

Frequently asked questions

What is the most common IP problem in a deal?

IP that was never properly assigned to the company by founders, contractors or agencies. It is inexpensive to fix early and awkward to fix in the middle of a deal.

Does a registration prove ownership?

It is strong evidence for registered rights, but not conclusive. The chain of title behind the registration should also be documented.

What happens if the buyer finds a problem?

It is corrected before signing, priced, covered by a specific indemnity, or made a condition to closing.

How far back does the review go?

It covers the full life of the right, from creation to the present, including who developed it and under what terms.

How this connects

IP review is one strand of M&A and due diligence. The wider process is described in M&A Due Diligence: What to Expect, and the deal structure in M&A for Growing Businesses. For valuing the rights themselves, see How to Value an IP Portfolio.